Topic 1: DANCING TO GLOBAL TUNES

October is the worst month for markets in the year 2023. The months started with the pressure of a higher US fed rate for a long period to bring down the inflation numbers targeting 2%. Still, the Monetary Policy Committee of the RBI maintained a status quo on repo rates and policy stance. In the first 2 weeks, Sensex posted minor gains whereas Nifty gained 0.8%. The sectors which gained the most were realty, consumer durables and IT sector. The military conflict in the Middle East weighed down the markets across the globe. But sentiments were boosted after the dovish statements of US Fed officials that the US Fed may not raise interest rates further and also the positive domestic macroeconomic data added to the gains after India’s Industrial Output rose to a 14-month high in Aug 2023 and India’s retail inflation eased to a three-month low in Sep 2023. In the second and third weeks markets felt the brunt of the escalating Middle East conflict, dipping to the lower levels and erasing the major gains. The domestic equity markets were in a bear grip due to many factors like the meltdown of global equity markets, higher US treasury yields, geo-political tensions in the Middle East, ongoing Ukraine conflict and the monthly expiry of futures and options. However, some buying at lower levels in quality stocks attracted few domestic buyers. The Sensex posted a loss of around -2.5% declining from 65512.10 to 63874.93 points. The Nifty 50 loses around -2% from the level of 19622.40 to 19232.95 at the month's end. The Israel- Hamas conflict seems to involve Iran and other neighbouring countries as it is getting critical day by day.

This war has affected the crude oil prices which have reached nearly $100 per barrel putting pressure on world economies. With the rise in US bond yields above 5% investors are pulling out from risky assets to safer bonds and other assets. Due to the above reasons, foreign institutional investors (FII) offloaded shares worth net Rs 1,761.86 crore, while domestic institutional investors (DII) added shares worth net Rs 1,328.47 crore on October 30, 2023, according to the provisional data available on the NSE. For the month till October 30, 2023, FIIs sold shares worth a net Rs 28,360.59 crore while DIIs bought shares worth a net Rs 24,765.61 crore. DIIs are picking up quality stocks at the lower levels of the market.

The FIIs are net buyers in the Indian debt markets with geo-political uncertainties looming and also the strong macroeconomic conditions with a stable rupee, investors are investing in safer options. The Indian bond yields rose sharply in October 2023, since the US Yields were also touching their highs. Bond yields rose on the back of rising U.S. treasury yields which reached its peak since the 2007 financial crisis. Elevated crude oil prices amid the escalating conflict in the Middle East extended the losses further. The local factors that support the rise in bond yields are - RBI’s announcement to conduct an open market sale of bonds through auction, the inclusion of Indian bonds in the JP Morgan Debt Index and lastly fall in domestic retail inflation. With the festive season, consumer spending is high and the government is trying to keep food inflation in control by various trade restrictions on staples. Higher US treasury yields have started hurting the Indian bond debt negatively now.

The rupee was rangebound due to higher crude oil prices, higher US treasury yields and lastly bearish phase of the domestic equity market. The Gold prices were falling as the month started but as the Middle East conflict intensified the prices soared being a safe haven for the investors. The crude oil prices also were falling due to slow macroeconomic numbers and high-interest rates across the globe. Crude oil prices are now moving according to the developments in the Israel- Hamas conflict as it affects the oil production region. The Indian markets maintained a high valuation despite long-standing imbalances in the economy, including high inflation, elevated bond yields, geopolitical tensions and supply constraints.